The basic truth about matter in the universe is…it doesn’t disappear, but only changes form.
The WSJ on 8-17-2010, page A6, raised one of the “dirty little secrets” in the mortgage business.
The Yield Spread Premium – Basically, loan originators “could” give the borrower a lower rate, but charged a higher rate and were paid by the lenders a “bonus” for that higher rate. Was it disclosed? Yes, but in a somewhat overlooked fashion.
Now I don’t know how may times this happened, but it has happened in the past – hence the change by the Federal Reserve (albeit under pressure by public outrage and not by the choir boys at the Fed…).
I have never and will never recommend any lender who does this. Yes, some clients have used lenders of their choice who charged this YSP. I don’t remember many, but they tend to be obscure, off branded lenders – some of which do not exist any longer.
The Federal Reserve has “now” banned the YSP (Effective April 1, 2011)..
(Hey – why not make it effective now and why wait so long?)
I don’t think anyone objects to compensating loan originators, but to reward them in a “bait and switch” manner is unconscionable.
As much as my Libertarian self shudders, my personal belief is that if the Federal Government can’t hang anyone over this, but they should at least make the lenders who did this refund the amount paid to the loan originators to the home buyer or reduce their loan balance by that amount.
My skepticism makes me believe that this “reward or bonus” will exist in this or other form in somebody’s pocket besides the borrower.
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